Agricultural & Resource Economics Theses and Dissertations
Permanent URI for this collectionhttp://hdl.handle.net/1903/2739
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Item Institutional Structure in Corporate Agriculture(2010) Bhutani, Niti; Chambers, Robert G; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, a state-contingent, principal-agent model is developed to examine the institution of input provision by a corporate firm that contracts with agents for the production of a given commodity. "Input provision" entails not only the provision and delivery of key inputs by the principal but also their purchases (or in-house production), as well as contract design to ensure their optimal use. The provision of key inputs is modeled in the context of production contracts for poultry and pork, such as those offered by Perdue Farms, Smithfield Foods, and Tyson Foods in the United States. The decision in question is the levels of inputs (e.g. feed, medication) that the contracting company provides to the farmer. This decision is endogenous to the model, and facilitates comparison of production contracts (input provision) with marketing contracts (no input provision, with all inputs purchased and/or provided by the farmer himself). The theoretical model formalizes Coase's idea that an institutional arrangement emerges if the benefits associated with it exceed the costs. In particular, I characterize the case of no input provision as a corner solution for the optimal choice of inputs provided. The extent of input provision, in turn, reflects "limits to firm size". I also examine conditions under which incentives relating to one of two output dimensions (produced by the agent) tend to zero, when both dimensions are observable and verifiable. The state-contingent approach is used as it allows for a general production technology, and the inclusion of transaction costs in a general theoretical model. The possibility of reservation utility being endogenous in dyadic relationships is also examined. This is explored formally by incorporating pre-contract interactions in a contractual framework with the principal and the agent competing as independent producers prior to contracting. Investment decisions of the principal in this framework favorably impact his variable costs both as an independent producer and as the principal party to a contract. I show that the higher these benefits, the stronger is the incentive for the principal to decide in favor of higher initial investment levels and realize a more competitive position vis-à-vis the smaller producer.Item Essays in Behavioral Economics: Applying Prospect theory to Auctions(2010) Ratan, Anmol; Lange, Andreas; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)I explore the implications of reference-dependent preferences in sealed-bid auctions. In the first part, I develop a Prospect theory based model to explain bidding in first-price auctions. I show that bidding in induced-value first-price sealed-bid auctions can be rationalized as a combination of reactions to underlying ambiguity and anticipated loss aversion. Using data from experimental auctions, I provide evidence that in induced-value auctions with human bidders, this approach works well. In auctions with prior experience and /or against risk-neutral Nash rivals where ambiguity effects could be altogether irrelevant, anticipated loss aversion by itself can explain aggressive bidding. This is a novel result in the literature. Using data from experiments, I find that ambiguity effects become negligible in auctions with experienced human bidders against (i) experienced human rivals and (ii) Nash computer rivals, when loss aversion is taken in consideration. The estimates for loss aversion are similar in auctions with human bidders (with or without experience). Next, I extend my approach of anticipated loss aversion to address bidding outcomes in first- and second-price sealed-bid auctions. As shown in first part, the model predicts overbidding in first-price induced-value auctions consistent with evidence from most laboratory experiments. However, substantially different bidding behavior could result in commodity auctions where money and auction item are consumed along different dimensions of the consumption space. Differences also result in second-price auctions. The study thereby indicates that transferring qualitative behavioral findings from induced-value laboratory experiments to the field may be problematic if subjects are loss averse and anticipate such losses at the time of bidding. Finally, I explore the effect of resale or procurement opportunities, to which bidders have heterogeneous market access, on bidding in first- price sealed-bid auctions. My models suggest that in auctions with resale, loss aversion causes underbidding with respect to the risk-neutral-Nash prediction. Bidders with greatest level of market access are least affected by loss aversion and therefore bid closer to the risk-neutral-Nash than bidders with smaller market access. In auctions with procurement, the effect of loss aversion is such that it causes overbidding (underbidding) for bidders with respect to the risk-neutral-Nash. Bidders with greatest level of market access are again least affected by loss aversion and therefore bid much conservatively and closer to the risk-neutral-Nash than bidders with very low market access. If market access is interpreted as a proxy for experience, the predictions of my model are qualitatively similar to the findings in List (2003, 2004). Since these indirect effects are obtained without altering reference-dependent preferences, it raises the possibility that the effects obtained in List (2003, 2004) in field settings may not arise entirely due to the direct effect of experience on reference-dependent preferences. This calls for a more careful reexamination of the underlying issues.Item Three Empirical Studies in Market Design(2009) Stocking, Andrew James; Cramton, Peter; Lange, Andreas; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Market design is the development of mechanisms that improve market efficiency and build on an understanding of the interaction between human behavior and market rules. The first chapter considers the sale of a charitable membership where the charity poses the market design question of how to price these memberships to capture the maximum value from donors' altruism. Using an online natural field experiment with over 700,000 subjects, this chapter tests theory on price discounts and shows large differences in donation behavior between donors who have previously given money and/or volunteered. For example, framing the charity's membership price as a discount increases response rates and decreases conditional contributions from former volunteers, but not from past money donors. This chapter thereby demonstrates the importance of conditioning fundraising strategies on the specifics of past donation dimensions. The second chapter examines an auction used to solve the assignment and price determination problems where price depends on the propensity to own or farm the land, a non-market good. This chapter studies bidder behavior in a reverse auction where landowners compete to sell and retire the right to develop their farmland. A reduced form bidding model is used to estimate the role of bidder competition, winner's curse correction, and the underlying distribution of private values. The chapter concludes that the auction enrolled as much as 3,000 acres (12 percent) more than a take-it-or-leave-it offer (i.e., non-auction program) would have enrolled for the same budgetary cost. Finally, the third chapter considers the online advertising word auction. The pricing determination and assignment problem must occur for over 2,000 consumer searches each second. Theory is developed where asymmetric advertisers compete and an advertiser-optimal equilibrium bidding strategy is presented that is robust to this asymmetry. Within this rich strategy space, it is shown that advertiser subsidization can be revenue increasing for the search engine. Using a novel dataset of more than 4,500 keyword bids by three firms on four search engines, a simulation of the auction environment illustrates that bidder subsidization is indeed revenue positive and can be improved upon by imposing bid caps or fixed bids on the subsidized bidder.Item Self-regulation, productivity, and nonlinear pricing. Three essays on quality production in agricultural markets(2006-05-16) Zago, Angelo; Chambers, Robert G.; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation I analyze the quality choices of a group of producers. In the first essay I use mechanism design to study the interaction of asymmetric information and the democratic process in the quality choices of a group of heterogeneous producers facing an opportunity to gain from establishing a reputation for their quality products. I find an asymmetry in the possible equilibria between the high and the low quality majorities. The quality level provided by the group with a low quality majority is lower than the first best, and the minority producers get rents. With high quality majority, if demand and group conditions are favourable, the quality level provided by the group is higher than the first best and the minority's type left with rents. Otherwise, the quality level provided by the group is first best and no rents are left to the low-quality producers in the minority. The second essay proposes a methodology to measure the characteristics of intermediate products when quality is multidimensional. It uses a general representation of the multioutput technology via directional distance functions and constructs quality indicators based on differences. The quality indicators may be used to evaluate firms' output taking into account the whole set of quality attributes. I explore the relationships among the different quality attributes and the yields by a systematic investigation of the disposability properties of the technology. In addition, I show how aggregate quality may vary with the production level. The third essay designs an optimal payment system for a group of producers implementing it empirically. In the essay I show how to implement the first best through higher prices for better quality commodities, deriving the optimal pricing schedule. I take into account producers' heterogeneity by modelling inefficiency and illustrating how technical efficiency interacts with producers' ability to produce output for a given level of inputs and hence affects revenues. The technology and the technical efficiency of producers are then estimated with a stochastic production function model. The estimation results are then used to simulate the pricing scheme.